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The Energy Summit 2017: Renewables or fossil fuels?

Financial costs associated with the transition from fossil fuels to renewables, getting to 100% renewables and electrification, and effective ways of reducing carbon emissions caused by fossil fuels were the top trending topics during The Economist Events’ Energy Summit 2017 in London in late November 2017. During the discussion two opposing climate change narratives emerged, focusing on financial risks borne by investors in fossil fuel companies.

Fossil fuel narrative

The bulk of the discussion at the Energy Summit 2017 was based on the exploration of new oil and gas reserves. In addition, speakers observed that carbon capture, greener petrochemicals, methane mitigation, energy efficiency and a carbon price were needed to optimise and reduce carbon emissions. When the discussion turned to the carbon price, the response was that, apparently, it was Marxist-Leninist to “centrally” set a carbon price.

A substantive carbon price is the most efficient way of fixing the world's biggest market failure: climate change. What about the US$5.3trn of subsidies on fossil fuels (according to 2015 data from the IMF) and the lack of a level playing field for those that do not pollute? And how can 80% of known fossil-fuel reserves remain in the ground (according to the Carbon Tracker Initiative) in order to stay within the upper limit of 2 degrees Celsius of warming agreed at the Paris climate change conference in 2015? Another question that needs to be raised concerns the legal ramifications of attributing climate change to fossil-fuel companies.

Renewable energy narrative

Mark Jacobson from Stanford University stated that 100% renewables and electrification of all sectors by 2050 required 42.5% less energy, zero emissions, lower energy costs, more jobs and fewer lives lost to pollution. No wonder that 82% of respondents in a demographically representative survey of 26,000 people across 13 countries in July 2017, commissioned by Danish green energy company Orsted, agreed with Mr Jacobson’s clean energy goal—particularly in China, which suffers the most from air pollution, where 96% agree.

All of this is “magical thinking”, according to Steve Hamburg, chief scientist of the Environmental Defense Fund, who promotes methane mitigation. Academic controversies (of whether the share of renewables will reach 80% or 100% by 2050) aside, Mr Hamburg agreed (in a subsequent conversation) that avoided emissions were the best way forward (as they do not have to be removed from the atmosphere).

Financial risks

Jeremy Leggett, chairman of the Carbon Tracking Initiative and a solar energy entrepreneur, suggested that oil and gas companies’ promotion of a carbon price was a cynical play as their encouragement would not fundamentally increase the likelihood of a substantive price on carbon. Moreover, coal is the fossil fuel most affected by a carbon price.

Mr Leggett also discussed the financial risks borne by investors in fossil fuel companies that continue to spend massively on exploration through capital expenditure. He suggested that this was a risky bet against the 193 countries that have signed the Paris Agreement. Either the Paris Agreement wins or the investors win, but both cannot win simultaneously. He cited the case of Canadian integrated energy company Suncor which is returning money to shareholders as dividends rather than searching for more oil.

Conclusion

Fossil fuel companies should invest all capital expenditure in renewables and return money to investors that does not serve that purpose and strands assets instead. An orderly exit from fossil fuels is a much better option than the alternative and lowers litigation risk. The alternative is a world that is 3 to 5 degrees Celsius warmer—a world that fossil-fuel giants are planning for despite their support for the Paris Agreement.

John advises private and public sectors on climate change and sustainable development. With Thomson Reuters and CDP he has co-authored several reports on private sector greenhouse gas emissions that focus on the biggest emitters (including value chains) and decarbonisation. John’s career spans 30 years in management, business intelligence, coaching and consulting in Switzerland, the US and Mexico. He holds degrees from the Geneva School of Business Administration (DAS), IE Business School (MBA) and Cambridge University (MA) Zoology.

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